Hand to Mouth Music Industry Keeps Making Bank While Its Artists Starve

October 27 21:49 2022

Lead singer of Grammy award winning band Garbage posted on Instagram “A large percentage of musicians that you know and love are likely living hand to mouth.” Manson continued, “So many of the artists that we revere and hold dear throughout history would have been utterly destroyed by this system entirely. Musicians cannot survive without being paid fairly for their music.

Juxtapose that sad state of affairs with the fact that Goldman Sachs forecasts that music industry will grow ~2x by 2030 to reach $142B annual revenue. That’s because primary growth driver in the music industry is streaming which as of 2021 accounted for 83% of recorded music revenues according to RIAA

Streaming is great for the industry but terrible for the artists on which it relies because it pays the least to the artist of any form of distribution today or at any time in the last 70 years.  If we take into account the 10 most popular streaming services (“PPSs”) in the world, the average collective “pay per stream” (PPS) value sits around $0.0071.  Further, to be clear, the PPS value is divided between the rights holders – and the artist is rarely ever the lone rights holder. To start, the stream is split between three types of copyrights: recording rights, performance rights, and mechanical rights.  The largest chunk of money is attributed to the recording rights (80%), which are divided between the record label (64%) and the recording artist (16%).

Vinyl Records to the Rescue?

So with streaming not putting food on their plates, what did musicians do?  They resurrected vinyl records – buying them from record presses and selling them to fans at their shows. 10 years ago there were less than 1M vinyl records sold in the U.S., but by 2021 that number had grown to almost 42M vinyl records and sales topped $1B for the first time since 1986

 While $1B is still a small number relative to the $15B in streaming revenue in the U.S. in 2021, the key difference is in the profit retained by the artist.  A vinyl record costs ~$7 to manufacture, and a band typically sells it directly to fans for $25 – good for $18 in profit.   A band would have to amass 450,000 streams on Spotify to match the profit of selling just 100 vinyl records.  Demand for vinyl records has reached the level where big box retailers like Walmart and Target now have vinyl record aisles again.

Contrary to what you might think, this boost isn’t driven by Boomers feeling nostalgic for the skips, crackles and pops of vinyl.  A 2019 YouGov poll found that 31% of adults in the US are willing to pay for vinyl, and the numbers are pretty consistent across all age demographics.  Further, a look at the top-selling albums of 2020 shows an even split across modern and vintage albums.

Vinyl Supply Falls Short

But sadly, demand has outstripped supply and record presses cannot keep up.  Currently the minimum order is 1,000 discs and the lead time is a whopping 14 months.  The situation is so dire that Jack White of the White Stripes and owner of Third Man Records has penned an open letter to the major record labels – Sony, Universal and Warner – pleading with them to invest in record presses. 

White says, “To be clear, the issue is not big labels versus small labels, it’s not independent versus mainstream, it’s not even punk versus pop. The issue is, simply, we have ALL created an environment where the unprecedented demand for vinyl records cannot keep up with the rudimentary supply of them.  In this spirit, I turn to our collegial big brothers in the music world, Sony, Universal, and Warner, and politely implore them to help alleviate this unfortunate backlog and start dedicating resources to build pressing plants themselves.”

How to give the artists what they need and the fans what they want?

“I’ve been a musician all my life” says Scott Arey, CEO of Community Musician.  “It’s never been easy to put food on the table as a musician, but now it’s almost impossible.”  Arey knows from whence he speaks – as a young musician, he signed with Warner Music and began touring as a warm-up act for the Indigo Girls, but he quickly discovered he couldn’t make enough money to pay his bills.

Arey decided to pivot towards a career in finance. After graduating from Stanford University, he began his career with KPMG and soon joined Bank of America where he worked for ten years, eventually becoming CFO of the Commercial Banking Division and CFO of BofA’s International Trade Bank. He then led a series of successful start-ups to growth and investor exits, such as Journey, Alsbridge, and the public company MoneyOnMobile.  Arey used those “day jobs” to finance his projects in the music industry which include composing and recording 60+ songs in commercial release with 2 different bands, performing live on stages around the world, owning 6 recording studios (which he built himself), owning a CD replication business, and owning a “Craig’s List for Musicians” with 150,000+ members in the early 2000s. 

“I’ve been working on this problem for 25 years – how to help artists make enough money to support themselves through the art they create” says Arey.  “Not every artist will not be a superstar – but with some persistence, a bit of talent and encouragement they will produce really good art that the fans they develop will love and support financially. We just need the business people and platforms that create no artistic products or value to get out of the way and if they don’t we’re going to push them out.”

Idealistic? Maybe, but you probably don’t want to bet against Arey. In 2019 he joined a video game company (Gearbox) that was valued at $66M and two years later sold it for $1.3B. “The music business is harder than video games. The problem is like a “Gordian Knot” – every time I’ve thought I had a solution to this mess of an industry, I find yet another tangle another knot.  At present, unless we solve for a way for artists to make real money off their recorded music, I think the rest of it won’t matter. It’s taken me a minute, but I believe now we have an innovative approach that combines the strengths of vinyl with the convenience of streaming.” 

Community Musician is still in the early stages with a patent pending product being piloted with a relatively small number of artists, but the early indicators are very positive.  Community Musician can produce its Collectible Music Cards at a fraction of the price of vinyl records, with a much smaller environmental impact, in batches of 200 with a lead time less than 1 month.  The fan who buys them after their favorite artist’s show can enjoy both the collectible artwork of the band as well as the convenience of “tap to play” on their phone.  Once the card has been tapped once they can play it from their phone any time they want with all the convenience of the streaming platforms.  Most importantly the fans know that they’re supporting the artists they love who keep the bulk of the profit since the transaction occurs outside the app stores. 

Arey says, “The same artists that brought back vinyl records and now can’t get one made, can buy the cards from us and sell them to their fans for a profit – just like vinyl!  Good for musicians. Good for fans.  Good for the industry. Good for everyone!” 

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